PlayStation Network losing money, but the outlook is bright

Sony is a bit behind the curve when it comes to the online side of the PlayStation 3. Yes, Sony fans, it is still a great online experience, and the people are fantastic, and the console is better, etc., etc., but the sad fact is that Sony is playing catch-up with Microsoft. The Xbox 360 has been airing video clips for years, has a full selection of music and videos to rent and buy, has begun to broadcast ESPN on Xbox Live (and also just announced that it will even be airing most of the Bowl games, including the national championship), and it is even discussing bringing a premium channel online. The PS3 hardware may be better, but the Xbox currently owns the online side. Search your feelings, PlayStation fan, you know it to be true.

But while Sony can sometimes take time to get to a conclusion, it eventually figures it out. Earlier this year, Sony began investing heavily in the future of the PlayStation Network. A yearly fee was initiated for an upgraded service, more video content—including exclusive programs like the Tester—became available, and much more was promised in the future. So far the results have not borne fruit in terms of cash for Sony, but that seems to be changing, and by next year the PSN could be turning a profit. By 2012, that profit margin could be in the billions.

In an interview with Reuters Japan (which was then translated and recounted by 1up.com), Sony Computer Entertainment President Kaz Hirai said that PSN sales in 2009 were approximately $434.3 million, and in 2010, that number nearly doubled. Next year that number is expected to nearly double again, putting the total sales into the billion dollar range, and by 2012, Sony expects the PSN to pull in around $3.6 billion in total sales.

Now, these numbers are coming from Sony itself, so the projections might be putting a heavy emphasis on internal confidence as much as anything, but there are figures to back up their optimism. Last month, the total number of PSN accounts topped 60 million. With December typically being one of the busiest sales months, that number could see a significant boost. There is also the fact that many analysts have predicted that thanks to the price cuts, the greater acceptance of blu-ray, and the growing list of exclusive titles, the PlayStation 3 could overtake the Xbox 360 as the second best selling console behind the Wii– so the projections are themselves based on projections.

For now PSN is still in the red, but it seems like Sony is finally catching up to its video game competitors. But playing catch up is something that Sony is used to by now. From the first day of its launch, the PlayStation 3 has been a hardware behemoth. It is by far the most powerful of the three major consoles, it has a blu-ray player built in, and of the three, Sony has the biggest global reach. And yet the PS3 continued to see lower than expected sales, lost money on each unit sold until recently, and still remains in third place.

The reasons are up for debate. Some might argue that the Xbox 360 used its year head start very effectively while Nintendo attacked a new market of casual gamers, leaving the PS3 out in the cold. Others might argue that the price tag, coupled with Sony’s bewildering approach of “if you want it, work harder and save your money” to the price turned others away. Whatever the cause, the first few years of life have been rocky for the system.

But then in 2010 things began to click. Sony seemed to have learned its lessons, and the price of the PS3 began to drop. More units were sold, and that created more manufacturing which lowered the cost of the parts, which in turn finally dropped the PS3 to a position where each unit sold was netting a profit after three and a half years.

Patience was part of it, but so was finding the right ways to appeal to gamers. As the PSN begins to show a profit, expect Sony to continue to expand the services it offers. The hardware battle will rage on, but the next battlefield is shaping up to be the online services offered to gamers.

Whatever console you own, the success of the PSN is good news. Competition breeds innovation, so as Sony’s profits soar, Microsoft and Nintendo will almost certainly continue to push their online services as well. Regardless of your console of choice, 2011 is already shaping up to be a very interesting one for gamers.

[Updated: As one of our more charming commenters pointed out, the number of 60 million PSN accounts includes both the PS3 and PSP. The article has been updated and the sentence in question removed.]